As more states legalize marijuana for medical and/or recreational use, more people are substituting weed for opioid-based painkillers and booze. A trend that only appears to be gaining strength.

As I’ve told you before, I am NOT on a crusade for legalized pot. Personally, as a buttoned-up kind of Wall Street guy, it’s not my thing.

But as a professional investor with more than 30 years of money-management experience, I’ve been trained to set my personal biases aside. That way, I can take a dispassionate view and evaluate the best money-making opportunities for my clients.

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And the fact that both Big Pharma and Big Booze are openly taking on the marijuana business — and, in some instances, donating big bucks to lobby against it — has caught my eye.

But they aren’t the only ones preparing for a possible Big Marijuana industry.

As I was following along the Oxycontin and beer-brewing money trail, I came upon another mega-industry that’s trafficking in sin consumables.

And unlike its brethren in the pharmaceutical and alcohol industries, it is setting itself up to profit should marijuana become legal at the federal level.

Cigarette makers have been grappling with declining numbers of smokers for years, especially here in the U.S.

Consider this: According to published data, the smoking prevalence rate among Americans in 2014 was 17.4%. That’s down from more than 21% a decade ago.

Lower gas prices have helped the tobacco business recently because nearly half of cigarette sales are made at gas-station convenience stores. But the broader trend isn’t moving in the industry’s favor, as shown in the chart below:

The CDC reports that about 15 out of every 100 adults (age 18+) say they currently smoke cigarettes.
That’s down from 21 a decade ago. Image credit: BloombergClick image for larger view

With cigarette consumption volumes declining, the tobacco industry has turned to consolidation in search of sustainable profits. For example, Reynolds American (RAI) — the owner of Pall Mall and Camel — recently completed a $28 billion merger with Newport maker Lorillard.

But now, few large acquisition options remain. That’s because just two companies in the U.S. sell nearly 80% of cigarettes — Reynolds and the market leader, Altria (MO), which holds the iconic and valuable Marlboro brand.

It’s an unheard-of level of market concentration in most industries, as you can see below …

Desperate for new products, the industry has invested in new tobacco-smoking alternatives such as electronic cigarettes and vapors. But those account for just a fraction of the giant tobacco market. And their growth potential is foggy at best.

Given the crossovers in manufacturing and marketing … as well as Big Tobacco’s skill in navigating regulation and lobbying in Washington …

“Legal pot is a compelling opportunity for the tobacco companies to look closely at.” So says Ken Shea, a food, beverage and tobacco analyst for Bloomberg Intelligence.

And you know what? They are looking closely at it. In fact, they have been. It wasn’t just recently as you might think … it began roughly 40 years ago!

That’s right. Documents turned over to the public following the 1998 national tobacco settlement are pretty revealing …

They show that executives at cigarette companies like Philip Morris (PM) began looking at the opportunities in cannabis as early as the 1970s — including combining pot with menthol cigarettes — in anticipation of it becoming legalized by the U.S. government.

In many ways, the current marijuana market resembles the tobacco market before 1880. That was a time before cigarettes were mass-produced using mechanized processes and marketed as national brands.

Federal legalization of marijuana opens the market to the major tobacco companies. They have a new opportunity to transform the marijuana market in the same way they did with cigarettes.

That’s because they have the financial resources, marketing muscle, political clout and product design technology to optimize the puff-by-puff delivery of THC, marijuana’s active ingredient.

That’s why tobacco companies are doing their groundwork today. They’ll be ready to pounce if marijuana mania continues to sweep across the U.S.

And that’s why, if your risk profile allows, you should get out your pencil and sharpen up your buy list.

Once Big Tobacco moves in, they’ll use their consolidation experience to snap up the currently existing smaller companies — both public and private — as they attempt to get first-mover advantage.

But with more than 200 marijuana stocks currently available on the publicly traded markets, you’ll need to do your homework, be selective and — here’s this week’s big tip — look for companies with special assets that the tobacco companies will crave.

Bill Hall is the editor of the Safe Money Report. He is a Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Besides his editorial duties with Weiss Research, Bill is the managing director of Plimsoll Mark Capital, a firm that provides financial, tax and investment advice to wealthy families all over the world.

Excellent artical. Even though I’m a brand new invester. I only deal in penny stocks ( because that is all I can afford at this point) . I’m very excited about the marijuana industry. I most likely won’t smoke it, but I will gladly invest in it. I value my lungs alot! That’s why I do not smoke anything. But my gut feeling is this industry is going to be HUGE! !!!

Bill, you’ve allowed the MSM to poison your mind. Weed is far safer than cigarettes, they put all sorts of dangerous crap in there. If you were really a buttoned up conservative, you should be fighting to outlaw coffee. Caffeine is a dangerous neuro toxin.

Respectively, has this become a Marijuana promoting website? Surely there can be a wider diversity of investment topics? You are risking turning off around half your readers on a topic that is of little interest to a large portion of your audience.

The cannabis Industry is still somewhat treacherous. Overall, there is definitely much growth ahead, primarily because of the medicinal properties, so there will big-time winners, but also losers.
Some companies already have the ability to remove THC, and Marijuana is not just for smoking, so that issue is no longer up for debate. As far as the MJ legalization issue, it’s amazing how so many so-called Capitalists (more like fake Capitalists) are constantly doing everything possible to squash real competition; in this case totally against legalization (even for medical use).

Excellent article. Marijuana will be one of the fastest growing sectors during the coming years and it will continue saving living, unlike tobacco and alcohol destroying lives. A person can overdose on alcohol, but there has never been one case of any person overdosing on marijuana. Indeed, alcohol is one of the most dangerous drugs. If anything alcohol should be listed in the same category as cocaine, as far as safety is concerned. Marijuana should not.